Major jump in housing pipeline in 2021 but capacity constraints in construction sector could curb housing supply as demand soars – BPFI Housing Market Monitor
Notwithstanding potential capacity challenges, more than 50,000 new residential units expected to be built between now and the end of 2023
Tuesday 8th March 2022 – The latest Housing Market Monitor Q4 2021 published today by Banking & Payments Federation Ireland (BPFI) shows that while there was a major increase in the housing pipeline in 2021, constraints in the construction sector, due to the continued impact of the pandemic and labour shortages, could curb housing supply as demand for housing continues to soar.
Mortgage drawdowns up 22% in volume terms and 25% in value terms in 2021.
Outlining the various indicators which clearly demonstrate the ever-growing demand for housing, Brian Hayes, Chief Executive, BPFI said: “We have seen a significant recovery in the housing and mortgage market during 2021 following the slowdown of 2020 due to the initial effects of the Covid-19 pandemic. Looking at mortgage drawdowns for example, there were 43,494 drawdowns valued at €10.5 billion in 2021, up 22% in volume terms and 25% in value terms on 2020. The continued increase in demand for housing is also evident when we look at mortgage approval activity, which is one of the forward-looking indicators in terms of measuring this demand. In 2021 we recorded the highest levels of mortgage approvals since our data series began in 2011 with the value of approvals alone jumping by 30% to €13.4 billion.
42% increase in housing commencements in 2021
“In addition to this demand the data is also showing a significant pipeline for housing output with more than 30,700 housing units commenced in 2021, a 42% increase on 2020. This is a substantial potential output for the residential construction sector in addition to some of the units that started in 2019 and 2020 but were not completed due to the pandemic.”
Capacity in construction sector facing challenges and may limit delivery
However, in contrast with the increasing demand for housing and supply pipeline, the Monitor highlights how capacity in the construction sector is now under pressure due to Covid-related absences and labour shortages which may ultimately limit the delivery of housing units required to meet demand. While the Monitor expects more than 50,000 new residential units to be built between now and the end of 2023, potential capacity challenges in the construction sector are expected to cause restraint in housing supply. Outlining the capacity challenges facing the sector in the coming two years to deliver the required units to meet demand Mr Hayes continued:
5% decline in completions in Q4 2021compared to Q4 2020
“Despite the rebound of the housing and mortgage market during 2021, we have not seen the same recovery on the supply side which continues to be impacted by the pandemic. Looking at housing completions, expectations were that the total completion levels would be higher for the full year however we see that there was a 5.3% decline in completions in the last quarter of 2021 compared with the same period in 2020. This is due to the effects of the pandemic on construction sites. The most recent CSO Labour Force Survey shows that absences in the construction sector in the last quarter of 2021 were at nearly 12%, similar to levels observed during the last quarter of 2020. Prior to the pandemic, the rate of absence in the sector in the last quarter of 2019 was at around 8%. It is likely that similar absence levels may be observed in the first quarter of 2022 given the wide circulation of the Covid-19 virus in society, so output in the first quarter of 2022 may be negatively affected which could affect the overall output levels for the year.”
Composition of construction sector employment has changed significantly
“And while the impact of Covid-related absences will abate in the short-term, the capacity issues within the construction sector are further compounded by labour shortages. At the end of 2021, there were over 158,000 people employed in the sector similar to the employment levels in 2001. However the composition of construction sector employment has changed significantly since then and parts of the total employment in the sector are now engaged in other construction activity such as commercial buildings and infrastructure projects. Given the significant pipeline of residential housing commencements we have seen in 2021, it is likely that the next two years will be crucial in testing the capacity of the residential housing sector being able to deliver units in order to meet demand, with residential housing facing very real competition from other sectors of the construction industry.”
ENDS/
Notes: Banking & Payments Federation Ireland (BPFI) represents the banking, payments and fintech sector in Ireland. Together with its affiliates, the Federation of International Banks in Ireland and the Fintech & Payments Association of Ireland, BPFI has some 100 member institutions and associates, including licensed domestic and foreign banks and institutions operating in the financial marketplace here.
The BPFI Housing Marking Monitor is published quarterly. In addition to presenting a unique range of loan-level data, the Monitor draws on a range of published data under the three key headings of housing supply, housing prices and rents, and housing transactions in its assessment of the current state of the housing market.
Contact: Jillian Heffernan, Head of Communications, 087 9016880 or jillian.heffernan@bpfi.ie
